Musings on World events from the perspective of a Social and an Economic Liberal.

Friday, November 24, 2006

Spectre at the Feast

I had intended not to write about Russia for a little while. This is especially since I am in the Baltic states this week, and it is difficult to be objective about a Russia when here it seems very big, very bellicose and very close.

However the death of Alexander Litvinenko may end up being the catalyst for a turning point in the perception of the West about what is happening in Russia. The British authorities are, rightly, trying to ensure that the investigation into Mr. Litvinenko's "unexplained death" will be as fair as possible.

Quite likely, the British government does not want to find any connection between the Kremlin and a callous murder of a British citizen in London. Since proving such a connection in a court of law is likely to be extremely difficult, publicly the British government will maintain the polite fiction that this crime is an unpleasant distraction to good Anglo-Russian relations.

Spies, especially double agents, are not popular with anyone on either side. However, in private the British will express fury that, for whatever reason, this death has occurred and the final, bitter denunciations of the dead man will stand as an accusation across the table at the bilateral Anglo-Russian meetings around the Russia-EU summit in Finland this week.

The Lahti summit in Finland is already torpedoed by the Polish veto on making a new EU-Russia agreement. The ongoing dispute over Polish meat exports to Russia is just a symptom of the loathing that Warsaw has for the Kremlin, and the eccentric government of Jaroslaw Kaczynski is highly unlikely to give an inch. Yet what lies beneath is not meat, but gas.

I have commented before about the dangers of Europe's future gas dependency on Russia- and the potential for Russia to use energy as a strategic weapon. However this week has seen the emergence of a different crisis and, perhaps as a Liberal, a more predictable one at that. As Edward Lucas notes in the Economist today, the discovery of a Russian gas shortfall opens up the prospect, not of Russia as a dangerous supplier, but of Russia being unable to supply at all.

Why should this be predictable to a Liberal?

Why, simple, the structure of the Russian energy industry as two state controlled behemoths, instead as free market entities has destroyed the efficiency of both operations. Investment has been misdirected and the result is that instead of bringing on new gas fields, Russia has run off old fields, and failed to invest in new transit infrastructure. Meanwhile the country has increased the use of gas in the domestic market. The consequence is that Gazprom will not be able to deliver the gas that it has contracted either to the domestic market or to the overseas markets. Putin will not want to take the electoral punishment that the interruptions to domestic supplies would give him. The consequence will be erratic supplies elsewhere.

Meanwhile, where new energy supplies are being opened up- in the Sahkalin-2 fields that Shell is developing, further disputes threaten the entire basis of international investment in the country. Unless Russia honours its contracts, the fact is that it will not get access to the technology that it needs to bring on new oil and gas fields, nor to increase capacity in existing fields, which have had their geology damaged by Soviet drilling techniques.

In the face of the gathering storm in European-Russian relations, few in the British government will want to take up the case of the dead Mr. Litvinenko. However, whether the British government desires it or not, it will be his ghost that speaks loudest at the deliberations this coming week.